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Anglos, Billiton and platinum shares down today

David Shapiro on rand improvement, GDP numbers, financials, Anglo, Billiton, platinums, Glencore, Opec production, oil price, pound, Brexit, Draghi, European markets, outlook.

SIKI MGABADELI: Good evening and welcome to the SAfm Market Update with Moneyweb. My name is Siki Mgabadeli.

We had some early morning gains, but ended the day down 1.5% on the all-share at 48 935; the Top 40 index is down 1.8%. The rand is at R13.63/dollar, R17.30/pound and R14.63/euro. Gold is at $1 171.42/oz, platinum at $947.17/oz and Brent crude oil at $53.87/barrel.

Hi David.

DAVID SHAPIRO: Siki, why did you mention early-morning gains? At exactly 10 o’clock we plunged. I can only associate that with two things. Number one, the rand improved quite a lot and I would imagine that had to do with the euro and the pound.

And then the GDP numbers came, which were very disappointing. They reversed a lot of the gains that we saw yesterday in shares like retailers and so on. It’s a number that’s causing concern because it’s way below expectation, with a number of areas really slackening off. We might get an improvement next year but what’s happening is economists are now saying growth next year 1%, maybe, just a little bit up – and that’s not good enough.

SIKI MGABADELI: Not good enough at all. If you look at our population growth it’s about 1.9%. We can’t have economic growth that’s below that. So was it sector-wise?

DAVID SHAPIRO: Financials held up better. It’s always difficult to look at our market just as a whole because a lot of the stocks are not influenced by local economic conditions.

The other thing that knocked us was there was a sell-off in miners. Anglos, Billiton, platinum shares were a lot lower today, tight across the board.

SIKI MGABADELI: And it’s interesting because Glencore was doing very well this morning, up about just over 2%, and then it turned.

DAVID SHAPIRO: You never know why they went. I look at three-month London Metal Exchange prices. They were all up, yet copper was down in America. You’ve got to know the market to reconcile [overtalking]…

SIKI MGABADELI: …what they are seeing that’s leading them to sell.

DAVID SHAPIRO: But what did come down was the oil price. Opec production in November was up. What happened is that some nations like Libya and Nigeria, which are not covered by the production cut, pumped a lot more oil. Now, if that continues, it means that those who are covered have to cut even more. So I think it just put a little bit of a question mark over the whole Opec agreement. Oil came down about 2% and I think that was just one of the disturbing factors in the miners. So we had miners down, local GDP numbers down, and then the rand improving – which took some of our offshore companies down.

SIKI MGABADELI: Why is the rand improving in this economy?

DAVID SHAPIRO: I don’t know. It’s at R13.60-odd to the dollar now. I don’t know if this is just a throwback from the S&P, because it doesn’t reconcile with the GDP numbers. If anything, you’d be a bit worried about the economy.

But the pound was very strong . At the moment the court is deciding whether you have to go to parliament to agree on Brexit strategy, rather than government doing it itself. I’m trying to simplify what it’s all about. What happens is the courts are dragging on and no one is quite sure what this is going to mean as well. It might mean that you’ve got to go to parliament. So the pound is improving against that, believing that the whole Brexit thing is going to be soft rather than hard. In other words, government can’t just decide we are getting out of there and we’ll handle it as it goes on. So that was one of the reasons.

The euro is also up, and that is peculiar as well. They are expecting Draghi to increase his bond-buying programme, which I though would maybe weaken the euro because it means interest rates are going to stay down for a lot longer. So try to put it all together and you are a better person than me.

SIKI MGABADELI: How is Europe reacting to developments in Italy?

DAVID SHAPIRO: Europe is strong. The Europeans are bubbling along very nicely. I think both the French and German markets were up about 0.5%. The FTSE was down a bit, but that’s not really Europe. European markets have been doing fine. Their GDP number is out today, which was in line with expectations – 0.3%, nothing dramatic. But not falling, not going into recession. So European manufacturers on this lower euro are doing pretty well. And banks there also are starting to improve.

SIKI MGABADELI: So what are we watching, then this week? How are we doing volume-wise?

DAVID SHAPIRO: R18 billion, which is below average. So there is not a lot of trade that’s going through. A lot comes through in the closing auction.

But, Siki, on the year we are down 3.5%, which just gives you an indication of the kind of year that we’ve had, and it’s been led down by the top end of the market, all those heavy Brexit-type stocks that rely on rand weakness or certainly pound strength. That’s been the biggest stumbling block.

On the other hand, miners have been strong and have given some kind of lift to the market. Financials are also fairly steady.

SIKI MGABADELI: Thanks, David. We’ll leave it there. David Shapiro is deputy chairman of Sasfin Securities.

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